By DINA BASS, BLOOMBERG NEWS

Published 10:00 pm, Tuesday, October 24, 2006

Apple Computer Inc.'s iPod will dominate the digital media device market in the next 12 to 18 months even as Microsoft Corp. introduces a competing music player, according to a JupiterResearch report.

The iPod won't lose "significant" sales among U.S. portable media device users, who will grow from 37 million this year to 102 million in 2011, New York-based JupiterResearch said. The company forecast the total number of players in use in the U.S. to rise to 196 million in 2011 from 62 million.

Apple has sold more than 67.6 million iPods since it introduced the device five years ago, giving it a 77 percent market share, according to NPD Group Inc. in Port Washington, N.Y. Microsoft, whose strategy of working with partners has failed to produce a device with more than 10 percent of the market, is releasing its own player later this year called Zune.

"Zune version one isn't going to have a very big impact on the market," said JupiterResearch analyst David Card, who worked on the report with Michael Gartenberg. "There's nothing on the horizon that looks like a game changer."

Zune doesn't have many features that aren't available on the iPod, Card said. The main one, a wireless connection to other Zune machines for sharing songs, isn't that compelling, he said.

Eleven percent of 2,232 customers surveyed by JupiterResearch said that feature was important to them in a portable music player. The top function desired by customers was a built-in FM radio, a Zune feature that's not on the iPod.

Still, customers don't seem to be bothered by the lack of a radio when they buy an iPod, Card said. Microsoft should have combined its music player with a phone or game machine to really change the competitive picture, he said.

Microsoft's Scott Erickson, senior director of product management for Zune, said the product is different from the iPod in ways that customers value, even if they don't ask for those features by name. Zune will let customers beam a song to nearby devices so that they can then keep the track for three plays or three days, whichever comes first.

He said that when asking potential customers what they want from a device, they say, "Well, when I am on the bus I can't share music with my friends. I have to give them my earphones, which is kind of gross, and when we get off they can't take the music with them."

Erickson declined to say how much market share Zune would win in a year. Microsoft is "optimistic, but realistic about the fact that Apple has been doing this for five years," he said.

Apple's iTunes music software, which works with the iPod, is a big part of the device's success, said Greg Joswiak, vice president of iPod product marketing at Cupertino, Calif.-based Apple.

"We have always been focused on trying to create the best possible product experience we can, regardless of what competitors are doing," Joswiak said.